Opinion Should Capital be taxed like wages?

How should capital gains be taxed compared to labor?


  • Total voters
    49

The creation of a billionaire class is a result of a flaw in our version of capitalism.

I'd even add this: it would be great for such individuals to create nonprofits with their health and avoid the tax and the govt getting it.
 
Capitol gains and corporate tax should be lower, if anything, and the death tax should be completely repealed

you don't tax societies into prosperity, period

and it basically tells me that almost everyone that is for it, has no retirement plan or savings and thus their opinion is largely irrelevant

I'm for it largely because I do have a retirement plan and therefore understand that capital will earn me more than working ever will and i'm not rich.

The more money you earn the lower the % of your lifetime capital that comes from earnings.

If you had 100k of VTI (AKA the US stock market) you made 30k tax free last year.

If you had 1million you made 300k tax free.

If you had 10 billion you made 3 billion tax free.


Rich people don't make money from earnings. Buffett is paid 100k. Bezos is paid less than Buffett.

Basically the system we have in place is we tax large amounts from the small pool known as earnings held by poor people and ignore asset gains which is the ocean of wealth of which the elite make billions.

You may think I have investments, i own an index fund and use the same tax avoidance strategy of never selling and constantly dollar cost averaging i'll be rich not my problem.

If we put even a tiny tax on assets we could drastically reduce the tax on earnings which would give you more money to invest which would drastically decrease the time in which you can achieve financial independence.

If it's just a cash grab I'm not for it. If you're talking about a tiny tax on the way the elite earn wealth so you can reduce the ridiculously high tax on the way the masses earn wealth I'm all for it.
 
I think the partnership example is perfect for what I am getting at and was what I was thinking about (also LLCs).

I think we are definitely getting somewhere here. The income is taxed at the individual level right away and it increases the tax basis of the investment so if the Individual later gets a distribution of said dollars he won’t get taxed again.

That’s it is exactly how is SHOULD work. No taxation sheltering of income in a corporation and then flowing it out at the capital gains rates.

Now imagine if the dollars remained at the Corp level and you then told the investor that you were going to tax him again on the increase in value of his investment? That would work as long as his tax basis was increased for any taxable income declared by the investment. So I agree that IF you step up tax basis for income declared by the investment then you don’t have double taxation.

The problem is that unless you are an LLC or partnership that is not how it works now. There is no basis step up to my investments for taxable income declared by a corporation. Now if we layer on an individual tax for unrealized gains, the individual is getting taxed for increases in value of his share above his cost basis. That value will be increased for undistributed earnings which have already been taxed at the corporate level (double taxation albeit at a lower rate) and expected future earnings which have not.

To make sense of this, corporate taxes need to be aligned with individual taxes (again I would use the average top marginal rate of the broad investor class) and investment cost basis needs to be increased for income tax declared at the corporate level. Then I think you could maybe argue for an unrealized gains tax, but at that point I am not sure how necessary it would be.

Again that’s because all the sheltering of actual realized value is gone and what is left is bets on the future and until someone is willing to make a real exchange of assets based on that value, it remains just that, a bet.
Generally, agreed. To me, one of the most important things is adjusting the tax basis on more regularly. And the only way you can do that and protect the state is to tax the gains, realized or not, on more regularly. Otherwise you end up with all sorts of timing games.

Of course, the other reason to tax the unrealized gains is that I don't think the market is operating the way it's supposed to. I think stock price manipulation is distorting the economic incentives of corporations and the financial sector. Making the unrealized gains taxable disincentivizes manufacturing stock bumps just for the sake of stock bumps because now you're manufacturing tax hits as well.

I think about something like bumps on earning reports, which never made any sense to me. Why should the stock price jump or fall based on the quarterlies? No one runs their business for 1 quarter at a time. But because you can predictably trade on the earnings report, meeting earnings expectations and thus bumping the stock price has become a raison d'etre. If that bump came with a tax hit, things like that might return to a more accurate long term reflection of the company's health.

Aligning corporate taxes with individual taxes is something I have to think about. Giving the number of accounting games, I'm hesitant to give companies another way of reducing their rate. So instead of paying the corporate rate on a fictitious earnings number, they're paying a lower rate on the same fictitious earnings number. I'm curious, are you thinking about making the rates the same or just the income brackets? How would you structure that?
 
Generally, agreed. To me, one of the most important things is adjusting the tax basis on more regularly. And the only way you can do that and protect the state is to tax the gains, realized or not, on more regularly. Otherwise you end up with all sorts of timing games.

Of course, the other reason to tax the unrealized gains is that I don't think the market is operating the way it's supposed to. I think stock price manipulation is distorting the economic incentives of corporations and the financial sector. Making the unrealized gains taxable disincentivizes manufacturing stock bumps just for the sake of stock bumps because now you're manufacturing tax hits as well.

I think about something like bumps on earning reports, which never made any sense to me. Why should the stock price jump or fall based on the quarterlies? No one runs their business for 1 quarter at a time. But because you can predictably trade on the earnings report, meeting earnings expectations and thus bumping the stock price has become a raison d'etre. If that bump came with a tax hit, things like that might return to a more accurate long term reflection of the company's health.

Aligning corporate taxes with individual taxes is something I have to think about. Giving the number of accounting games, I'm hesitant to give companies another way of reducing their rate. So instead of paying the corporate rate on a fictitious earnings number, they're paying a lower rate on the same fictitious earnings number. I'm curious, are you thinking about making the rates the same or just the income brackets? How would you structure that?

I agree with the tax basis thing, but remember that presumes synchronization, like a partnership or LLC. The partners pays tax on income and that increases the tax basis in the investment and when the entity distributes cash, the tax basis reduces. This way if the investment is ever sold and the earnings are retained, you are not taxed on the income a second time. If all the income was already distributed and the investment was still sold for value then that’s a tax on incremental value and the tax is fair game (or if it was sold for more than the tax basis).

Problem is non LLC corps don’t work like that. So if you taxed corps at a higher rate, then taxed the income fully when income was distributed or gain realized, you would have a huge tax disadvantage for corps. The problem is, as you said, the rates are not synchronized, so how do you increase an individuals tax basis in an investment when a different rate is paid by an individual than a Corp?

I think first you increase the rate on corps to the top marginal rate of the average investor, it would be an estimate but it would remove a good portion of the incentive for sheltering. Then you give tax basis for taxable income declared by the Corp, but you could rate adjust when income is distributed. Ie Corp makes $100 pays $40 tax. I own 10%, so my tax basis goes up $10 in the share, with a 40% tax shield on it. If I get $10 distributed to me then instead of it being tax free I get a $4 tax credit. If my marginal tax rate is 60%, I owe $2 tax. The Corp already paid $4 , I paid $2, that’s the 60% rate. Gains on sale would work the same way. It’s not perfect, but the higher the corporate the less gaming for tax reasons. Canada has something a little like this but it’s less precise.

As far as taxing to stop stock manipulation, I am a little skeptical. Manipulation is something that happen on the short and long side. It has more concern around insider training as far as earnings go. If a company is good at meeting earnings guidance then releasing them won’t bump stocks as it’s baked in already. The real market corruption has to do with conflicts of interest, diverting shareholder value to board and management through compensation and stock options, outright longer term accounting irregularities, etc. etc. I am not sure that taxing an investment over a perceived future increase in value is the remedy for all that.
 
I agree with the tax basis thing, but remember that presumes synchronization, like a partnership or LLC. The partners pays tax on income and that increases the tax basis in the investment and when the entity distributes cash, the tax basis reduces. This way if the investment is ever sold and the earnings are retained, you are not taxed on the income a second time. If all the income was already distributed and the investment was still sold for value then that’s a tax on incremental value and the tax is fair game (or if it was sold for more than the tax basis).

Problem is non LLC corps don’t work like that. So if you taxed corps at a higher rate, then taxed the income fully when income was distributed or gain realized, you would have a huge tax disadvantage for corps. The problem is, as you said, the rates are not synchronized, so how do you increase an individuals tax basis in an investment when a different rate is paid by an individual than a Corp?
Let me make sure we're talking about the same thing. I'm talking about capital primarily in things like the secondary stock market. The way corporations are taxed now, they already have a double taxation problem. I don't think you need to change how corporations are taxed (although you could certainly change the rates). They get taxed on their earnings at the corp rate and when they distribute, the owners get taxed at their individual rates.

But stock in the stock market doesn't have that issue. It's post tax dollars and they're not taxed a 2nd time. Gains and losses are taxed. So you can pay the tax, change the basis and still never double tax the initial principal.

I did say earlier that start up capital and IPO level investments should still get special tax treatment.

I think first you increase the rate on corps to the top marginal rate of the average investor, it would be an estimate but it would remove a good portion of the incentive for sheltering. Then you give tax basis for taxable income declared by the Corp, but you could rate adjust when income is distributed. Ie Corp makes $100 pays $40 tax. I own 10%, so my tax basis goes up $10 in the share, with a 40% tax shield on it. If I get $10 distributed to me then instead of it being tax free I get a $4 tax credit. If my marginal tax rate is 60%, I owe $2 tax. The Corp already paid $4 , I paid $2, that’s the 60% rate. Gains on sale would work the same way. It’s not perfect, but the higher the corporate the less gaming for tax reasons. Canada has something a little like this but it’s less precise.

As far as taxing to stop stock manipulation, I am a little skeptical. Manipulation is something that happen on the short and long side. It has more concern around insider training as far as earnings go. If a company is good at meeting earnings guidance then releasing them won’t bump stocks as it’s baked in already. The real market corruption has to do with conflicts of interest, diverting shareholder value to board and management through compensation and stock options, outright longer term accounting irregularities, etc. etc. I am not sure that taxing an investment over a perceived future increase in value is the remedy for all that.

I'm intrigued but I want to clarify something - your 10%? Is that initial founder's capital or 10% you picked up on the NASDAQ? Because if it's founder's capital, I think a preferential tax treatment is still a good idea. If it's not, what's happens if the corp doesn't make a distribution - your tax basis still adjusts, you just don't pay a tax?

So, your tax basis goes up $10 in the share, you get the 40% tax shield credited to you in some fashion? And then we repeat next year?

As far as stock manipulation, I agree about where the real corruption lies and you brought up something that I was thinking about as well. But I'm not really trying to stamp out corruption so much as I'm trying to get as much tax as possible out of secondary market capital.
 
I'm for it largely because I do have a retirement plan and therefore understand that capital will earn me more than working ever will and i'm not rich.

The more money you earn the lower the % of your lifetime capital that comes from earnings.

If you had 100k of VTI (AKA the US stock market) you made 30k tax free last year.

If you had 1million you made 300k tax free.

If you had 10 billion you made 3 billion tax free.


Rich people don't make money from earnings. Buffett is paid 100k. Bezos is paid less than Buffett.

Basically the system we have in place is we tax large amounts from the small pool known as earnings held by poor people and ignore asset gains which is the ocean of wealth of which the elite make billions.

You may think I have investments, i own an index fund and use the same tax avoidance strategy of never selling and constantly dollar cost averaging i'll be rich not my problem.

If we put even a tiny tax on assets we could drastically reduce the tax on earnings which would give you more money to invest which would drastically decrease the time in which you can achieve financial independence.

If it's just a cash grab I'm not for it. If you're talking about a tiny tax on the way the elite earn wealth so you can reduce the ridiculously high tax on the way the masses earn wealth I'm all for it.
I agree with this and my wife and I max out our retirement every year
 
What a fantastic way to destroy growth. Let's just take it all!



It's not hard to see how bad it would go with Leftists having their way.
 
Less tax on everything and less government.

You have to be a complete retard in life to want more taxes
 
I think there are a couple of factors that determine this. Is it your main source of income etc. But yes. I also find it funny that rich politicians create so many loop holes to avoid paying more in taxes. I get it, taxes suck, but are necessary. It’s patriotic to pay your fair share, not amount, but percentage.
 
Let me make sure we're talking about the same thing. I'm talking about capital primarily in things like the secondary stock market. The way corporations are taxed now, they already have a double taxation problem. I don't think you need to change how corporations are taxed (although you could certainly change the rates). They get taxed on their earnings at the corp rate and when they distribute, the owners get taxed at their individual rates.

But stock in the stock market doesn't have that issue. It's post tax dollars and they're not taxed a 2nd time. Gains and losses are taxed. So you can pay the tax, change the basis and still never double tax the initial principal.

I did say earlier that start up capital and IPO level investments should still get special tax treatment.



I'm intrigued but I want to clarify something - your 10%? Is that initial founder's capital or 10% you picked up on the NASDAQ? Because if it's founder's capital, I think a preferential tax treatment is still a good idea. If it's not, what's happens if the corp doesn't make a distribution - your tax basis still adjusts, you just don't pay a tax?

So, your tax basis goes up $10 in the share, you get the 40% tax shield credited to you in some fashion? And then we repeat next year?

As far as stock manipulation, I agree about where the real corruption lies and you brought up something that I was thinking about as well. But I'm not really trying to stamp out corruption so much as I'm trying to get as much tax as possible out of secondary market capital.
Shit I never responded to this sorry

I try tomorrow :)
 
You want the US to be like the UK? One good way to do that is make there no incentive to deploy capital to drive growth and new business.
 
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